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Testing the immigrant assimilation hypothesis with longitudinal data

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Abstract

This paper is concerned with the comparison of alternative empirical techniques (cross section, synthetic cohort and panel data) for testing the immigrant assimilation hypothesis (IAH). The IAH specifies that immigrants acquire destination relevant human capital, but at a decreasing rate, with duration in the destination. Hence, ceteris paribus, earnings would be expected to increase, at a decreasing rate, with duration. The true assimilation effects may be obscured, however, in analyses of synthetic cohort or panel (longitudinal) data if there are period effects. That is, if the effect on earnings of duration in the destination varies over time. The empirical analysis uses a matched sample of adult male immigrants from the 1983 and 1995 Censuses of Israel. The matched data show that selective exit from the labor force (due to death, absence from the labor force, and inability to match, but not the remigration of immigrants) is associated with lower earnings in 1983. This biases upward the earnings assimilation estimated by the synthetic cohort method. The earnings data are also consistent with the hypothesis that the mass immigration to Israel from 1989 to 1995 raised the return (price) to Israeli-specific human capital among long-duration immigrants sufficiently to more than offset the greater increase in units of destination human capital acquired by more recent immigrants. As a result, long-duration immigrants experienced a steeper increase in earnings from 1983 to 1995. This annulled the true assimilation effects from 1983 to 1995. Longitudinal tests of IAH which assume that the returns to destination-specific skills remained constant (i.e., that there are no period effects) are biased against supporting the IAH if these returns increased.

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Notes

  1. For applications of the SCM to other countries, see for example, Adeymir and Skuterud (2005) for Canada, and Friedberg (2000) for Israel.

  2. We are grateful to the Israel Central Bureau of Statistics for making detailed data files available for this research, and to Laura Staetsky who constructed the files which we used.

  3. All permanent residents of Israel are registered in the Population Register of Israel and identified by a nine digit PIN. The population register is maintained by the Ministry of Interior and includes records of addresses and demographic and vital events.

  4. The early 1980s were a period of economic instability in Israel. The average monthly inflation rate for the 4 months prior to the census was very high (7.6%), and for April was 13.3%. In cases where earnings were reported for March or May the data were deflated.

  5. In practice of the 14,425 foreign-born men who were sampled in 1983, 13,682 had sufficient wage data for analysis, as did 1,257 of 1,316 individuals in the matched file.

  6. For example, Bahral (1965) shows how the mass immigration in the 1950s affected the level and structure of wages, increasing the rate of return on human capital. See also Beenstock and Fisher (1997).

  7. We could have estimated separate equations for earnings and then compared immigrant earnings with the earnings of comparable natives. However, the result would have been the same as explained above. The earnings growth for natives during 1983 and 1995 has been analyzed by Beenstock (2004).

  8. The results of Model 1 are similar to those obtained by Chiswick (1998) using almost identical data.

  9. If the “survivors” are favorably selected, the cross-sectional and synthetic cohort methods would generate an upward biased estimate of the earnings assimilation of immigrants.

  10. When earnings in 1983 are included as an explanatory variable in the regressions in Table 5, this variable has a statistically significant negative coefficient. This could arise from those making greater investments in on-the-job training in 1983, and hence depressing reported earnings in that year, receiving returns from the investment that increase their 1995 earnings. The negative coefficient could also arise from purely random measurement error in 1983 earnings.

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Correspondence to Barry R. Chiswick.

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Beenstock, M., Chiswick, B.R. & Paltiel, A. Testing the immigrant assimilation hypothesis with longitudinal data. Rev Econ Household 8, 7–27 (2010). https://doi.org/10.1007/s11150-009-9064-7

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